Central oxytocin (OXT) has anxiolytic and pro-social properties both in humans and rodents, and has been proposed as a therapeutic option for anxiety and social dysfunctions. Here, we utilized a mouse model of social fear conditioning (SFC) to study the effects of OXT on social fear, and to determine whether SFC causes alterations in central OXT receptor (OXTR) binding and local OXT release. Central infusion of OXT, but not arginine vasopressin, prior to social fear extinction training completely abolished social fear expression in an OXTR-mediated fashion without affecting general anxiety or locomotion. SFC caused increased OXTR binding in the dorso-lateral septum (DLS), central amygdala, dentate gyrus, and cornu ammunis 1, which normalized after social fear extinction, suggesting that these areas form part of a brain network involved in the development and neural support of social fear. Microdialysis revealed that the increase in OXT release observed in unconditioned mice within the DLS during social fear extinction training was attenuated in conditioned mice. Consequently, increasing the availability of local OXT by infusion of OXT into the DLS reversed social fear. Thus, alterations in the brain OXT system, including altered OXTR binding and OXT release within the DLS, play an important role in SFC and social fear extinction. Thus, we suggest that the OXT system is adversely affected in disorders associated with social fear, such as social anxiety disorder and reinstalling an appropriate balance of the OXT system may alleviate some of the symptoms.